China’s Stocks Retreat as Volatility Jumps to 3-Yr High

China’s stocks fell for the first time in three days, led by liquor companies and brokerages, as a gauge of volatility in the benchmark index jumped to the highest level since December 2010.

Kweichow Moutai Co. (600519), the biggest liquor company by market value, slumped to a three-week low after UBS AG said it sees downward price pressure on alcoholic products. Citic Securities Co. (600030) and China Citic Bank Corp. slid more than 2 percent, dragging down a measure of financial companies. A gauge of real-estate developers rebounded after the Xinhua News Agency said the government is poised to remove a ban on refinancing.

The Shanghai Composite Index (SHCOMP) fell 1 percent to 2,044.92 at the close, after rising as much as 0.5 percent. Its 30-day volatility was at 26.8 today, according to data compiled by Bloomberg. The CSI 300 Index dropped 1.5 percent to 2,282.84. The Hang Seng China Enterprises Index (HSCEI) advanced 0.7 percent.

“Investors are divided over whether the government can really prevent economic growth from slumping further in the second half,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Trading is volatile.”

The Shanghai Composite has fallen 9.9 percent this year as data from industrial production to exports pointed to a slowdown in the economy and as money-market rates reached record highs last month. The measure trades at 8.4 times 12-month projected profit after valuations fell in June to the lowest level in at least five years, according to data compiled by Bloomberg.

Liquor Stocks

A measure of consumer-staples stocks in the CSI 300 slumped 2.4 percent, the biggest decline among the 10 industry groups. Kweichow Moutai fell 2.1 percent to 186.92 yuan. Wuliangye Yibin Co. (000858), China’s second-biggest liquor maker by market value, lost 2 percent to 20.12 yuan. Luzhou Laojiao Co. slid 2.2 percent to 24.07 yuan.

Liquor makers’ earnings growth will be less than 20 percent this year and mid-priced alcohol will be most affected by online shopping, Wang Peng, an analyst at UBS, said at a briefing in Shanghai today.

Premier Li Keqiang said yesterday the government will seek to keep economic growth, employment and inflation within limits, avoiding “wide fluctuations.”

China will focus on restructuring when the economy runs within the limits of growth and inflation, shifting to stabilizing growth or preventing inflation when those limits are approached, he said. Li’s comments were the first made public since the National Bureau of Statistics reported that economic growth slowed for a second quarter.

Economic Risks

Deutsche Bank AG co-Chief Executive Officer Anshu Jain said policy makers’ efforts to bolster domestic consumption and reduce dependence on the government’s infrastructure spending pose some risks.

“It’s the right strategy for them in the long run,” Jain said in an interview with Bloomberg Television’s Haslinda Amin today in Singapore. Still, “if there is something to watch closely in China, it would be the implications of that shift from infrastructure spending.”

Citic Securities, China’s biggest listed brokerage, sank 3 percent to 10.64 yuan. Citic Bank, the banking unit of the nation’s largest investment company, fell 2.3 percent to 3.82 yuan. China Life Insurance Co. (601628), the country’s biggest insurer, lost 1.6 percent to 13.54 yuan.

Foreign direct investment in China rose to a record $14.39 billion yuan last month, according to the Ministry of Commerce. The 20 percent growth compared with the estimate of a 0.7 percent gain in Bloomberg survey and the 0.3 percent May gain.

Whether FDI has recovered can’t be concluded from the June data alone, ministry spokesman Shen Danyang said in Beijing. FDI growth may be “relatively stable” in the second half of the year, he said.

Developers’ Financing

The Shanghai Composite’s property index rebounded 0.6 percent, reversing a loss of as much as 1.4 percent, after a report from the Xinhua News Agency said the removal of a ban on fund-raising for developers looks certain. Real-estate stocks fell earlier today after the government said it’s studying expanding property taxes.

Financial Street Holdings Co. added 0.4 percent to 5.15 yuan. CityChamp Dartong Co. gained 1.2 percent to 8.64 yuan.

The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.5 percent in New York yesterday.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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